China officials dump luxury homes amid crackdown

EstherFung

China's corruption crackdown has already taken a bite out of the hospitality sector in China with its ban on lavish banquets and is now starting to make waves in another corner of the economy, as officials afraid of government scrutiny are dumping apartments.

In one case late last year, an Inner Mongolia political leader named Wu Zhizhong was convicted of corruption, accepting bribes and embezzling public funds. Investigators said Mr. Wu owned 33 properties in China and one house in Canada. Xinhua, China's official news agency, said the keys to all of his homes could fill up an entire handbag.

Cai Bin, a former Guangzhou official dubbed "Uncle House" on social media, was also convicted last year for accepting bribes. Investigators said he and his family owned more than 20 homes.

Those cases, and others like them, have raised alarm bells among local government leaders.

According to roughly a dozen property agents interviewed by The Wall Street Journal, officials are now afraid to buy luxury pads, and several are trying to offload properties that might raise red flags.

"Officials are focused on selling their homes quickly, so they are willing to sell at 5% to 10% cheaper than the average prices of comparable homes," says Zhang Yan, a manager at Shanghai Centaline Property Consultants, who says he sells three to four homes to officials every quarter on average. Party members usually find a buyer within two weeks, he said, while most other sellers find buyers in about a month, waiting for a higher price.

The impact of the corruption crackdown on the overall market is difficult to measure, in part because there is no national property registration system in China. While there are limitations on how many homes a person can buy, some people have relatives or surrogates purchase homes for them.

The dumping of properties is the latest iteration of fear that has spread through the Chinese government at all levels as President Xi Jinping's anticorruption campaign rolls on. Already, government officials have toned down lavish banquets, gift-giving and travel.

And it comes at a bad time for China's property market, which is facing a slump that many economists say poses the greatest risk to the country's economy. Housing sales in the first seven months this year fell 10.5%, according to official data issued last week.

According to real-estate agents, government officials make up as much as 20% of owners in the luxury housing market, and the agents say they simply aren't buying much anymore.

"A major way to corrupt an official is to give him a house as a gift," says Yan Jirong, a professor at the Peking University School of Government. "The anticorruption campaign is sending a signal" that such tactics should be stopped, he said.

Housing corruption is rampant in China. In June, the authorities in Guangxi Autonomous Region issued a statement warning civil servants "in possession of excess homes" to turn them in, though it left vague where and how to surrender such property.

The Central Military Committee, which controls China's armed forces, says it wants military personnel to annually declare the property they own, and has threatened to punish officers who hide or falsify their declarations.

In June, one government official offered a two million yuan ($325,000) discount on his apartment in Beijing's downtown Chaoyang district, originally priced at 22.5 million yuan, according to the real-estate agent selling the home. An advertisement for the four-bedroom home was titled "Distressed sale!!!"

Mr. Zhang said he sold an apartment in Shanghai's high-end Gubei district for an official last year for around 11 million yuan. Comparable homes sold for at least 12 million yuan at that time, he said.

"It was a three-bedroom apartment in a good location, and the home he lived in was actually humbler," Mr. Zhang says. "He was exceedingly discreet."

According to a recent survey of investors and property developers in China conducted by the Urban Land Institute, a think tank, only 23% of the respondents expected to invest more in luxury residential real estate, one of the lowest percentages recorded in the survey. That compares with 44% who expect to increase their investment in the midmarket housing sector.

In Hangzhou, sales of high-end homes plunged 54% in the first half the year, according to data tracker China Real Estate Index System. Gao Yuansheng, research director of the firm's Hangzhou office, attributed the fall mainly to expectations for slower price appreciation, but said it could be partly due to the anticorruption measures.

Another drag on the real-estate market: Beijing is paving the way for a nationwide system to tax and register property, which would make it much easier to identify modestly paid government officials who buy multiple homes. However, draft rules on a property-registration system issued Friday indicated the public would have only limited access to such a registry.

In a study from the University of Pennsylvania, economists found that Chinese government officials buy larger and more lavish homes than nonbureaucrats, despite earning typically 14% less in monthly income. Some officials also receive a price discount of nearly 4%, according to the study, which said that the size of the discount appears related to the power the official wields among local developers.

Bureaucrats in the study accounted for 7.1% of buyers--a much higher percentage compared with the 0.86% proportion of bureaucrats in China's total population.

Many officials mask their homeownership by using the IDs of their chauffeurs, relatives or surrogate buyers, according to real-estate agents.

One agent in Beijing said a client was in the process of unloading a home when the client was arrested last year. "I didn't realize he was an official until I saw his picture online when he was arrested," the agent said.

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